Chapter 3: (6-8marks) Pensions law and regulation

Question 1

The 6 main individuals in any pension scheme are:

Administrator
Member
Trustee
Actuary
Auditor
Investment Manager

Tell me key points about each

BEFORE EXAM LOOK AT KEY RESPONSIBIITEIES, ESPECIALLY WITH TRUSTEES, and SAs

THIS IS COMMONLY ASKED IN AN EXAM!!!!!! SEE BTS’s summary

Answer 1

Scheme administrator =
If no SA, or no replacement SA within 30 days, the RPS status can be lost meaning it becomes an unapproved scheme with no tax advantages at all. If lost, a de registration charge applies (40% charge on value of scheme assets before registration is lost). Most important role.

Member =
Members who have flexibly accessed DC pension funds must notify the SA. This must happen within the relevant 13-week period, so 91 days from the trigger date (when they accessed these funds).

Scheme Trustee =
RPSs are established under a trust and therefore require scheme trustees. They can delgate jobs but have ultimate responisbily (same as SA). main responsibilities of scheme trustees are un the The Pensions Acts 1995 and 2004.

Scheme actuary =

A scheme actuary cannot also act as a scheme trustee. In practice, scheme actuaries are required more for a DB than a DC scheme. It helps here to consider how a DB scheme works. A DB scheme has a variety of assets, invested across different investment classes. These assets must be sufficient to provide all member benefits at death and/or retirement. No member has their own pot – so funds are not earmarked
The scheme must ensure that assets are checked regularly, to ensure there is no shortfall. They check atleast every 3 years.
This is where the scheme actuary comes in

Scheme auditor =
Must be completed independent to the scheme and have no relation. An auditor checks and confirms, via sign off, that scheme accounts, valuations and other documentation has been prepared in line with relevant rules and legislation. This is known as ‘auditing the accounts’.

Investment manager =
this individual is a ‘controlled function’ or comes under SM&CR rules. Therefore, they are individually approved and registered with the Financial Conduct Authority (FCA). The investment manager is responsible for the following: Managing scheme investments in line with its risk profile.
Buying and selling scheme investments.
Reclaiming tax paid on most investments.
They are the only scheme member who is classed as a controlled function!

Question 2

The scheme adminstrator of a pension is a vital role.

Do they need to be appointed by the FCA?

Answer 2

No, nor do they need to be registered with the pension regulator but they are known to HMRC

Question 3

Can a scheme administrator give work to an independent third party?

Answer 3

they can indeed. Just like trustees, the SA can give work to a third party. The ULTIMATE responsibility however stays with the SA.

Question 4

Members who have flexibly accessed DC pension funds must notify the SA. True or false

Answer 4

True

This notification must happen within the relevant 13-week period, so 91 days from the trigger date (when they accessed these funds).

By flexibility it means via

Question 5

RPSs are established under a trust and therefore require scheme trustees. True or false

Answer 5

True

Question 6

To act as a scheme trustee, an individual must be able to legally hold scheme property (assets). This means they must:

be aged at least 18 (so not classed as a minor).
have mental capacity (so not certified as mentally incapacitated).
not be disqualified under rules contained in the Pensions Act 1995 (such as a bankrupt or disqualified company director).
not be disqualified by The Pensions Regulator (TPR), who keeps a register of such individuals.

Answer 6

Note: Someone with a criminal record would not automatically be disqualified: it would depend on what the offence was. Convictions for deception, fraud and dishonesty would preclude an individual from acting as a trustee

have mental capacity (so not certified as mentally incapacitated). = You must not have had any mental issues for entire life!

Question 7

Non-professional trustees are given six months, post-appointment, to get up to speed.

True or false

Answer 7

True

Question 8

Trustee repsonbilty includes

Answer 8

These responsibilities include the need to:

obtain audited accounts, or face criminal proceedings and penalties.
draw up a schedule of scheme contributions, showing key dates and amounts.

report any contribution payment delays of more than 30 days to TPR (common exam question).

draw up a statement of strategy (DB schemes only) with advice from the scheme investment manager which must include ethical and voting policies.
draw up a statement of strategy (DB schemes only) showing how the statutory funding objective of the scheme will be met.
establish a recovery plan (DB schemes only) if a scheme valuation shows a funding deficit.

Question 9

What is a Pensions Dashboard?

Who are the main bodies involved and what are their key responsibilities (see image)

Answer 9

A pensions dashboard is akin to a platform, where an individual can access the information relating to all of their pensions online, securely and all in one place

Currently, the average individual has eleven different jobs in their lifetime, so possibly eleven different pensions, plus their State Pension!

This means they need to go to lots of companies and sites to try and access their full retirement picture. In May 2020, The Association of British Insurers (ABI) estimated that £19.4 billion of pension pots were unclaimed, just because of individuals not telling their pension provider when they move home!

Question 10

What is ‘scheme rules override’?

Answer 10

Some RPSs do not allow payments under pension freedom options. The scheme rules override system will allow such payments to be made, without scheme rules having to be amended. Otherwise, such payments would be classed as unauthorised with onerous tax implications. The payment options included are: UFPLS, drawdown pensions, dependant drawdown and short-term annuity pension provision.

Question 11

The law that interacts with RPSs can be broken down into three main areas: Divorce, Employment, and Bankruptcy

Question 12

When a couple get divorced, all their marital assets must be considered in the financial settlement, including any pension schemes.

There are three options in terms of dealing with RPSs in a divorce: Offsetting, earmarking & pension sharing

Answer 12

When a couple get divorced there are two parties to the divorce:

The member: The member is the party with the pension scheme benefits.
The ex-spouse: The ex-spouse is the other party in a divorce.

Offsetting =

where the member gets to keep their pension benefits in their entirety, and the ex-spouse is awarded a greater share of the other marital assets in lieu of this. The process followed is to establish the Cash Equivalent Transfer Value. As this is a ‘clean break’ arrangement, any future remarriage or death of either party has no effect on an offsetting agreement.

Earmarking =
Also known as a ‘pension attachment order’.
An earmarking order allows an ex-spouse to receive pension or lump sum benefits from the member’s pension scheme when the member crystallises these benefits (or death if earlier).

Question 13

When a couple get divorced there are two parties to the divorce:

The member: The member is the party with the pension scheme benefits.

The ex-spouse: The ex-spouse is the other party in a divorce.

Question 14

What is the Cash Equivalent Transfer Value ( CETV )for a DC scheme?

What is the CETV for a DB scheme?

This is calculated using a four-stage process.

Step 1 – calculates the current value of scheme benefits.
Step 2 – re-values these to the scheme normal retirement age.
Step 3 – calculates the lump sum required to provide this future pension (using annuity rate assumptions).
Step 4 – discounts this future lump sum back into today’s values (using
discounting rates).

Answer 14

1) What is the Cash Equivalent Transfer Value ( CETV )for a DC scheme? =
This is simply the fund value less any charges or penalties.

2) What is the CETV for a DB scheme? =

This is calculated using a four-stage process.

Step 1 – calculates the current value of scheme benefits.
Step 2 – re-values these to the scheme normal retirement age.
Step 3 – calculates the lump sum required to provide this future pension (using annuity rate assumptions).
Step 4 – discounts this future lump sum back into today’s values (using
discounting rates).

Question 15

For a couple divorcing from December 2000 onwards, all three options are available.

Answer 15

Offsetting = This is where the member gets to keep their pension benefits in their entirety, and the ex-spouse is awarded a greater share of the other marital assets in lieu of this.

Earmarking = An earmarking order allows an ex-spouse to receive pension or lump sum benefits from the member’s pension scheme when the member crystallises these benefits (or death if earlier). Can either be an Earmarked periodic payments or Earmarked lump sum payments.

Pension Sharing = Allows the member’s pension rights to be ‘split’ at the point of divorce. This percentage will relate to the fund value of a DC scheme and the benefits in a DB scheme.

Question 16

What is the purpose of the Age Discrimination Directive?

Answer 16

This was introduced into the UK by the Equality Act 2010. The aim of this legislation was to ensure that all individuals were treated the same in terms of their employment and vocational training, including any pension rights.

All occupational schemes were affected, as an employer contribution is a legal requirement of such schemes. Personal pension schemes were also affected, but only in terms of employer contributions.

The types of schemes unaffected were all state pensions, pension shares on divorce, and purchase of annuities from an insurance company.

Question 17

Direct discrimination is where the employer, trustees or investment managers treat an individual less favourably based on their age.

Indirect discrimination is where a rule, practice, action, or decision whilst appearing not to discriminate based on age, does so in its application.

Answer 17

There are several, some of which apply only to personal pensions, others only to OPS and some to both.

Examples of allowable exemptions include different ages or a minimum waiting period for scheme admission, requiring a minimum level of pensionable pay and making different employer contributions for different classes of employee

Question 18

Paid parental leave is a term that covers maternity, paternity and adoption leave.

Answer 18

Two factors influence how pension rights are treated for the individuals on leave:

Are they on paid or unpaid leave?
Are they a member of a DB or DC pension scheme?

LEARN DIFFERENCE

Question 19

Financial Services and Markets Acts (FSMA 2000)

This is one of the major financial services statutes. It established that an occupational pension scheme was not classed as an investment, and therefore is not regulated. Investment management however is a regulated activity, which means that:

External and internal fund managers must be approved and authorised by the FCA.
They are registered under the Senior Managers and Certification Regime (SMCR), or as an approved person and must satisfy rules for a ‘fit and proper’ person.

Question 20

When an individual is unable to repay or service their debt, they may voluntarily elect for, or be forced into, bankruptcy by their creditors. An individual is made bankrupt, and a company is declared insolvent

The individual’s assets available to creditors are known as the bankrupt’s estate. This includes all their assets apart from anything classed as excluded property.

Answer 20

Excluded property includes things like toys, books, vehicles, and assets used by the individual for their business. It also includes assets like clothing, bedding, furniture, and household goods which are deemed to be needed to meet the basic needs of the individual made bankrupt and their family

Pensions are classed as assets, and are therefore part of the estate and available to creditors. !!!!!

For pensions:Income cannot fall below a certain level.
This is a level that is required to meet the reasonable needs of the bankrupt and their family.
Maximum order length is three years.
Can only continue post-discharge with a court order.
Remember, the standard term for bankruptcy is 12 months. An income order can only continue for longer with the court’s instruction.
Reviews will be carried out by the TIB if the order is for longer than 12 months.
These must be carried out at least annually.

Question 21

The Pensions Regulator (TPR)

What powers does TPR have?

Answer 21

responsible for the regulation of workplace pensions schemes

3 main types of powers (within these types there are multiple things they can do) =
-Investigating
-putting things right
-acting against avoidance

Question 22

TPR has the power to authorise and de-authorise a master trust. From 1st October 2018 all existing master trusts must be registered with TPR. If they are not registered, they must be wound up. All new master trusts must apply for and obtain authorisation before they can operate.

What is a master trust?

Answer 22

A master trust is a multi-employer occupational scheme where each employer has its own division within the master arrangement. They offer employers the benefit of a governance function but with generally lower operating costs, greater simplicity and expediency than a single employer scheme. The employer still controls contributions, investments and benefit decisions.

Question 23

The Pensions Advisory Service

Answer 23

This was an independent voluntary organisation, set up and funded by the Department for Work and Pensions (DWP).

Its key role was to provide information and guidance to the public on all different aspects of pensions, including pension benefits from the state, individual and employer pensions.

In 2019 TPAS became part of a single financial body known as the Money and Pensions Service (MaPS). The consumer facing brand for MaPS is MoneyHelper

Question 24

What is the guidance guarantee?

Answer 24

This service was introduced to help individuals with DC (money purchase) pension funds understand all the pension options available to them. Informed consumers make better financial decisions. This did not give the consumer any advice

It is offered by the Money & Pensions Service. The consumer facing brand for MaPS is MoneyHelper

REMEMBER: The Money Advice Service, The Pensions Advisory Service and Pension Wise have been redirected to the MoneyHelper website as part of the UK Strategy for Financial Wellbeing

Question 25

The Pensions Ombudsman (TPO)

Answer 25

TPO deal with complaints regarding the running and administration of both individual and occupational pension schemes. This is known as maladministration.

TPO DOES NOT deal with pension advice complaints. (Advice complaints come under the remit of FOS.)

Question 26

There are certain complaints that TPO do not deal with. What are they?

Answer 26

State benefits.

Any pension advice given (This is FOS’s remit)

Issues where a firm’s complaint procedures have not been followed first (you must do this if u want to refer to TPO)

Question 27

Financial Ombudsman Service (FOS)

Answer 27

It is an independent body.

Eligible complainants include:

Consumers and consumer buy to let consumers (accidental landlords).
Micro enterprises (with an annual turnover or balance sheet that does not exceed €2 million and fewer than ten employees).
A charity with an annual income of less than £6.5 million.
A trust that has a net asset value of less than £5 million.
Guarantors.
A small or medium-sized enterprise (SME) with an annual turnover of no more than £6.5 million and fewer than 50 employees.

FOS deals with pensions ADVICE complaints. This includes dealing with complaints regarding:

Pension transfers.
Pension recommendations that are clearly unsuitable and not best advice.
Any situation where delays in actioning a pension request has led to a financial loss.

Question 28

Are there any complaint time limits? ie, how long can you make a complaint after the event occurs

What rewards can the FOS give?

Answer 28

6 months from the firm’s final response of the complaint. (remember a firm has 8 weeks to issue a final response or must tell them their right to go to the FOS)

6 years from the event being complained about.

3 years from when the complaintee knew or should have known they had cause for complaint.

Complaints exceeding these timeframes are ‘time barred’ and are ignore .

If a complaint is upheld, FOS can grant a money award, a directions award, or both.

Money award – this is up to a maximum of £430,000 plus interest and costs (from 1st April 2024).

Directions award – this is where the business must rectify the matter complained about.

Question 29

3 types of pension compensation schemes. What are they?

Answer 29

Pension Protection Fund

Financial Assistance Scheme

Fraud Compensation Fund

Question 30

The Fraud Compensation Fund is run by the same individuals that run the Pension Protection Fund

PPF and FAS are designed to protect members of DB or hybrid schemes (with a DB element) where:

The scheme is underfunded, and
The employer is insolvent.

Answer 30

The FCF is designed to pay compensation where funds have been lost through fraudulent activities.

Question 31

When will the PPF step in, in relation to a scheme?

Some key conditions must be met, including:

Not started wind-up before 6th April 2005.
‘Insolvency event’ has occurred with no chance of scheme rescue.
Insufficient scheme assets to provide members with compensation in line with PPF minimums.

Question 32

The Pensions Regulator (TPR) and the Pension Protection Fund (a compensation scheme)

READ THROUGH 3.5

Answer 32

For the PPF to take responsibility over a scheme, a prescribed insolvency event must take place

When this event occurs, an assessment period will start, during which PPF will assess the scheme and whether it qualifies for compensation.

The PPF asks two questions
Can the pension scheme be rescued?
Can the pension scheme afford to secure benefits which are at least equal to the PPF compensation levels for the pension scheme members?

If the answer to both is ‘no’, the Pension Protection Fund will assume responsibility for the pension scheme.

If the answer to either of these questions is ‘yes’, the PPF will cease to be involved with the pension scheme and the pension scheme will either continue or wind-up outside of the compensation scheme

EXAMPLE:

THE BHS PENSION SCANDEL. This scheme was in deficit to the tune of £571 million. Sir Philip paid in £363 million because THE PENSION REGULATOR MADE HIM but this still meant the scheme trustees approached the PPF for help to secure member benefits up to permitted compensation levels. The PPF then reviewd

This assessment period should last no longer than 2 years and the scheme trustees remain in control.

During this period, there are strict rules that must be adhered to ie, no new members, many reviews etc (SEE LIST)

Question 33

What is a moral hazard?

Answer 33

This relates to one of the things that happens during the PPF’s 2 year assessment period of a scheme. During this assessment strict rules are in place. One of them is that the PPF will carry out reviews and see if any of the schemes actions were a moral hazard

This is where the scheme has taken certain actions which may be construed by PPF as an attempt by the employer to provide additional benefits for certain employees, in the knowledge that insolvency is on the cards and this additional liability will be covered by PPF compensation.

The assessment period is when the PPF see if the scheme is eligible to be taken under its responsibility or not (ie, where it should receive a payout from the PPF)

Question 34

Once a scheme is in the assessment period by the PPF, generally no transfer values will be paid to members, however there are a few exceptions to this rule.

Question 35

What is a section 143 valuation?

This is a valuation method that calculates the assets that would be required if each member’s benefits were to be bought out with an insurance company, but only to the PPF compensation levels.

Question 36

What levels of compensation does PPF provide?

These levels are different depending on the type of member. There are two levels of protection: LEARN DIFFERENCES)

100% of accrued benefits (This level of PPF protection applies to individuals in three situations)

90% of accrued benefits capped at 90%.

Question 37

Are PPF benefits inflation proofed?

Inflation-proofing is split into two types: yes, split revaluation and escalation (see differences in 3.5)

Question 38

The Financial Assistance Scheme (FAS)

The FAS was also introduced by the Pensions Act 2004 and covers the same types of pension schemes in the same situations as the PPF

So, what is different about FAS?

FAS provides capped compensation to DB or hybrid schemes that are unfunded, and the employer has suffered an insolvency event, but this occurred before the introduction of the PPF.

Qualifying schemes include:

Those where scheme wind-up started between 1st January 1997 and 5th April 2005.
Those where wind-up started after this date, but the insolvency event occurred before 6th April 2005.

Question 39

triviality commutation” refers to a provision that allows individuals to take their pension benefits as a lump sum instead of receiving regular payments. This typically applies when the total value of the pension is below a certain threshold, making it more manageable and cost-effective for both the pension scheme and the individua

Question 40

The Fraud Compensation Fund (FCF)

Answer 40

The FCF compensates individuals that have fallen victim to fraud, dishonesty, or asset misappropriation, where the employer has suffered an insolvency event and is unlikely to be able to continue in business. Both DB and DC occupational pensions are covered by this fund. The FCF is funded from the Fraud Compensation Levy raised on eligible pension schemes (same as PPF)

Question 41

3.5.4: Pension liberation schemes?

Answer 41

These are scams that tempted pension scheme members to transfer their benefits into unregistered schemes. The temptation is usually better returns, earlier access to funds etc.

The FCA have a website called ScamSmart to try and help consumers recognise and avoid these.

Using these types of scheme could lead to substantial tax penalties and many were classed as unauthorised payments

Question 42

The Pension Scams Industry Group (PSIG)?

Answer 42

is a voluntary group set up to combat pensions scams. They published Combatting Pension Scams

Question 43

True Fact: Cold-calling in relation to pensions is illegal and a likely sign of a scam

Answer 43

Cold calls used to be scammers’ most common method of approach, but since the cold-call ban was introduced in 2019, tactics have evolved.

Question 44

The Pensions Act 2008 introduced legislation applicable to work-based pension schemes: 7
Employers must offer workplace pension schemes, different categories of workers & minimum levels of contributions required

What are the different Worker Categories (highly likely to be tested)?

Answer 44

Auto enrolled (applies to eligible jobholders)

Opting in (applies to non eligible job holders) which has 2 definitions (I am definition 1)

Right to join (applied to entitled workers)

LEARN DIFFERENCES AS WILL BE EXAMINED

Question 45

Eligible jobholders are subject to auto-enrolment rules. This means that:

They will be auto-enrolled into a workplace pension scheme unless already a member of an alternative qualifying scheme.
They can choose to opt-out of the scheme, but will then be re-enrolled every 3 years and each time they change employer.
This is known as ‘soft compulsion’ and is an attempt by the government to use natural human inertia to ensure individuals save more towards their retirement. An eligible jobholder has to take action to ‘opt-out’, so the government are hoping a certain percentage will not get around to doing this.

Question 46

In relation to workplace pensions and enrolement, Eligible jobholders must be given key information no later than six weeks after their enrolment date

ie, how it works
projected benefits etc

Answer 46

This information must be communicated no later than 6 weeks after scheme joining rights apply.

Question 47

Entitled workers are neither auto-enrolled nor do they have the right to opt in

Non-eligible jobholders, although not being auto-enrolled, do have the right to opt into a scheme, and receive employer contributions into this scheme.

Answer 47

Entiled workers - Employer must explain they have right to JOIN the scheme

Non eligible jobholders - Employer must explain they have the right to OPT into the scheme

Question 48

What is National Employment Savings Trust (NEST)?

Answer 48

Each member has their own NEST retirement pot which they can keep contributing to, even if they change employment, stop working or become self-employed. It aims to keep charges low and provides clear communication to members. Investment fund choice is aligned to both DWP and TPR guidance, offering default funds to help workers. All fund choices are clearly labelled to address the needs of a diverse workforce, but all at the same low charge.

Question 49

What is NOW : Pensions?

What is NEST?

What is The People’s Pension?

Answer 49

NOW Pensions is a low-cost alternative to NEST that has come over from Denmark.

The People’s Pension is a flexible and portable workplace pension scheme designed for members and is not for profit. As a result, any profits made are used for the benefit of members

Question 50

These are earnings that fall between the LEL of £6,240 and the UEL of £50,270. Workplace pension scheme contributions are based on qualifying band earnings.

Answer 50

What % of qualifying earnings must be paid into a workplace pension scheme?

8% (5% employee, 3% employer)

If you earnt 15,824 annually, your qualifying earnings would be 15,824 - LEL = 9636. The contributions of 8% are on the 9636

If employee contributes 5% it is actually 4% net and the other 1% is tax relief.

Question 51

What were the minimum scheme contributions if an existing DC pension scheme was used?

Where an employer utilised an existing scheme, an alternative earnings definition was established by TPR to ensure minimum requirements were met. The minimum contribution levels, based on the amount of pensionable pay, are split into three tiers:

Question 52

some of the different charges associated with workplace pension schemes. These include:

Annual management charge (AMC)
Contribution charge
Monthly administration fee
Ultimately, the pension scheme decides on the charges it levies, taking account of any governmental parameters.

Answer 52

What is an annual management charge (AMC)?

An AMC is an annual charge, expressed as a percentage of a fund value. It covers the costs of actively managing an investment fund. The better an investment manager does in terms of fund growth, the higher the monetary amount of AMC that will be paid. Worse fund performance results in a reduced AMC due.

What is a contribution charge?

This covers the costs of administering a new contribution. It is a charge expressed as a percentage of the value of a contribution made.#

What is a monthly admin fee?

This is a fixed charge to cover the administration costs of the scheme. It covers the costs of monthly plan administration.

Question 53

Employers must automatically re-enrole any jobholders who opted out every 3 years…

Question 54

Regarding auto-enrolment, the employer must ensure that the scheme does not:

Contain any barriers to enrolment
Such as a minimum age requirement. If this is the case, the employer must provide another suitable scheme for jobholders wanting to opt in for the period during which they cannot join the main scheme.
Require members to provide information to become or remain a member
Such as an application form, as this is not permitted for a qualifying scheme.
Require the employer to provide information about the jobholder as a condition of joining
This is only allowed if jobholder information provision will not slow down the auto-enrolment process

Question 55

How does an eligible jobholder opt-out?

They must compete an opt-out notice and send this to their employer. There is a time window within which this can be completed. This is a one-month period from the later of the date:

the jobholder became an active member.
auto-enrolment information was received from the employer.
The opt-out notice is received from the scheme rather than the employer

Answer 55

If an invalid notice is received by the employer, they must inform the employee the reasons why it is invalid. In such cases, the opt-out period will be extended to six weeks, ensuring the worker is an active scheme member by a certain date

Question 56

To finish off this section on workplace pension schemes we need to consider a few more areas:

Contribution refunds
Automatic re-enrolment
TPR registration
Record-keeping
Ongoing responsibilities

Answer 56

Contribution refunds

Once a valid opt-out is received, the employer can refund any employee contribution taken via salary deductions. Refunds must be made to the employee either:

Record keeping:
Most records must be kept for at least six years. (see table in 3,6)

Records of opt-outs must be kept for a minimum of four year

Question 57

: Key individuals in an RPS

These are: the scheme administrator (SA), member, trustee, actuary, auditor, and investment manager.
There must be a scheme administrator under the requirements of the Finance Act 2004.
They must complete an online declaration that the RPS will be run in line with rules contained within the PTM, and are responsible for the submission to HMRC of several different returns, including event report forms, accounting for tax returns and the scheme tax return.
Scheme trustees protect the interests of scheme members. They must be at least age 18, with capacity and not disqualified by TPR.
A scheme actuary is responsible for preparing periodic actuarial valuations, mainly for DB schemes.
A scheme auditor checks and signs-off various documents, such as scheme accounts and valuations.
An investment manager can be an internal employee or an external company.

Question 58

2: Pensions law and how this affects key RPS individuals

Pensions law can be broken down into three groups: divorce, employment, and bankruptcy.
There are three pension options in a divorce: offsetting, earmarking and pension sharing.
There are two parties to a divorce: the member and the ex-spouse.
Employment law can be divided into three main sections: age discrimination, UK law and EU law.
Age discrimination can be direct or indirect, and is allowed if it is proven to be ‘objectively justified’.
UK law affects maternity, paternity and adoption leave rights.
One of the major UK laws in relation to pensions is FSMA 2000.
Equalisation under EU law means gender discrimination is not permitted.
The Pensions Directive introduced the concept of ‘cross-border schemes’ where schemes operating in two or more EU states are harmonised. More clarity is still expected post Brexit.
Bankruptcy affects an individual owing at least £5,000 to creditors.
Some pensions are protected against creditors, such as GMP and state benefits, others can be accessed to repay the debtor’s creditors.

Question 59

: Pension regulatory bodies

There were four main regulatory bodies: The Pensions Regulator (TPR), The Pensions Advisory Service (TPAS), The Pensions Ombudsman (TPO) and the Financial Ombudsman Service (FOS).
TPR protects employer-sponsored schemes established for employees.
TPAS was a voluntary organisation providing information / guidance across all aspects of pensions.
TPAS also offered the Guidance Guarantee, in conjunction with the Pensions Wise website.
TPO investigates complaints concerning the administration of pension schemes.
FOS investigates complaints in relation to pensions advice.
FOS can award a maximum £430,000 plus interest and costs to compensate for bad advice.
There is now a single financial guidance body – the Money and Pension Service (MaPS).
This has brought together the MAS, TPAS and Pension Wise.

Question 60

4: Pension compensation schemes

There are three types of compensation scheme: the Pension Protection Fund (PPF), the Financial Assistance Scheme (FAS) and the Fraud Compensation Fund (FCF).
The PPF covers members of DB schemes wound-up from 6th April 2005.
Member protection varies between 100% of pension benefits accrued for certain member types, and 90% for active / deferred members.
The FAS protects DB scheme members that wound-up between 1st January 1997 &
5th April 2005.
There is one protection level: 90% of pension benefits accrued capped at £44,695 annually.
The FCF compensates individuals who have fallen victim to fraud, dishonesty, or asset misappropriation.

Question 61

5: Workplace pension schemes

There are three worker categories: eligible jobholders, non-eligible jobholders and entitled workers.
Eligible jobholders are aged between 22 and SPA and earn more than £10,000 annually.
There are two definitions of non-eligible jobholder: definition one is aged between 16 and 21, or SPA and 74 earning more than £10,000 annually, definition two is aged between 16 and 74 earning between the LEL and £10,000 annually.
Entitled workers are aged between 16 and 74 and earn less than the LEL.
These three different worker categories have different rights in relation to information, auto-enrolment, and employer contributions.
A staging date is the date from which worker categories must have been assessed, the scheme registered with TPR and auto-enrolment put in place for eligible jobholders.
Postponement is where an employer puts off assessing worker categories past their staging date.
There are three centralised schemes available: NEST, NOW: Pensions and The People’s Pension.

Question 62

Exon Ltd offers its employees occupational pension scheme membership. The MAIN responsibility of employer trustees is…

to ensure the scheme is run and maintained in the best interest of all members.

to run the scheme in the best interest of the employer.

to ensure the scheme is run and maintained in the best interest of active members.

to run the scheme in the best interest of the employees.

Answer 62

to ensure the scheme is run and maintained in the best interest of all members.

Trustees must act in the best interest of all members of a pension scheme.

Question 63

Jenny and Mike are going through a divorce. Their marital assets have been valued at £1,000,000. Mike also has a DB OPS valued at £500,000. If Jenny agrees to pension offsetting as a solution, how much of Mike’s pension will she receive?

None

£100,000

£250,000

£500,000

Answer 63

None

Offsetting in relation to pensions and divorce means that the ex-spouse, Jenny, will receive more of the other marital assets, leaving Mike’s DB pension scheme untouched

Question 64

Jake is aged 20 and currently earns £11,000 as an annual salary. In terms of workplace pension scheme rules, what does this mean for Jake?

He will be auto-enrolled by his employer.

He can opt in and must receive a minimum employer contribution.

He can ask to join and must receive a minimum employer contribution.

He does not have to be offered membership of a pension scheme.

Answer 64

He can opt in and must receive a minimum employer contribution

Jake will be categorised as a non-eligible jobholder. He is aged between 16 and 21 and earns more than the £10,000 auto-enrolment earnings trigger. He can therefore opt in and is legally entitled to an employer contribution if he does so.

Question 65

A creditor has successfully won a bankruptcy case against a debtor. As a result, the creditor has started receiving payments from the debtor’s section 32 buy-out bond. This is MOST likely to mean that…

the debtor’s bankruptcy is expected to last longer than two years.

the section 32 does not have an element of Guaranteed Minimum Pension (GMP).

the debtor is not in receipt of their state pension entitlement.

the section 32 has not yet been crystallised by the debtor.

Answer 65

the section 32 does not have an element of Guaranteed Minimum Pension (GMP).

GMP is not accessible to a creditor in bankruptcy proceedings. As the creditor has started receiving payments from this section 32, it cannot contain any element of GMP.